In the given case study,one of the construction giants in New Zealand, Fletcher building has been talked about which is in trading halt for a last couple of days and has asked for some more time from its bankers. The risk is looming large in the minds of the investors that the company is in bad state and that’s the reason why the share price are falling dramatically. It is expected that due to major losses the company will have to go into breaking down its banking covenants to pay the debts it has taken from the banks amounting to $ 2 Billion. The situation cannot be termed as the mere reporting and disclosure issue, it is surely a management accounting issue as the management was not aware of the increasing debt of the company over the period of time and even if they were aware they did not report the same in the financial statements leading to a situation where the investors are the shares selling spree and the market capitalization of the company has come down from $11Bn to $7.7 Bn (Alexander, 2016). The same has forced the top management of the company to leave and there’s a temptation for the investors to sell and exit the market. The best way of handling such a situation is to disclose the actual position alongwith the future plan to make good the losses and ultimately the situation so that the market situation can stabilise.
I am in complete agreement with the above mentioned comment that it is the responsibility of the management as well as the directors of the company and particularly the management accountants of the company worth $ 5 Bn to identify the debt repayment issues of the ccompany and report the same in the annual report so that the stakeholders will be well informed of the issues and a way can be found out as to how the company will come out of such a situation and pay back its debts. Furthermore, even if the management has missed out, but then it was the responsibility of the auditor to report the issue under the key audit matters as the issue and quantum is material and debt equity ratio and market capitalization, gearing ratio and debt service coverage ratio is something which falls within the ambit of control procedures and analytical audit procedures (Dichev, 2017). Therefore, besides management accountant, the auditors have also failed in their responsibilities.
Alexander, F. (2016). The Changing Face of Accountability. The Journal of Higher Education, 71(4), 411-431.
Dichev, I. (2017). On the conceptual foundations of financial reporting. Accounting and Business Research, 47(6), 617-632. Retrieved from https://doi.org/10.1080/00014788.2017.1299620
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